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FAIR TRANSITION FROM DEFINED BENEFIT TO TARGET BENEFIT

Published online by Cambridge University Press:  29 July 2021

Xiaobai Zhu
Affiliation:
School of Insurance Finance and Actuarial Science Southwestern University of Finance and EconomicsChengdu, China E-Mail: xiaobaizhu@swufe.edu.cn
Mary Hardy*
Affiliation:
Department of Statistics and Actuarial Science University of Waterloo Waterloo, ON N2L 3G1, Canada E-Mail: mrhardy@uwaterloo.ca
David Saunders
Affiliation:
Department of Statistics and Actuarial Science University of Waterloo Waterloo, ON N2L 3G1, Canada E-Mail: dsaunders@uwaterloo.ca

Abstract

Target benefit (TB) plans that incorporate intergenerational risk sharing have been demonstrated to be welfare improving over the long term. However, there has been little discussion of the short-term benefits for members in a defined benefit (DB) plan that is transitioning to TB. In this paper, we adopt a two-step approach that is designed to ensure the long-term sustainability of the new plan, without unduly sacrificing the benefit security of current retirees. We propose a cohort-based transition plan for reducing intergenerational inequity. Our study is based on simulations using an economic scenario generator with some theoretical results under simplified settings.

Type
Research Article
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of The International Actuarial Association

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